Federal Court Rules Pilfered Source Code Isn't Stolen Loot

Sergey Aleynikov, a former Goldman Sachs employee who helped himself to the source code for secret company applications on his way out the door, is off the hook thanks to a federal appeals court. The court ruled that the laws under which Aleynikov was convicted -- the National Stolen Property Act and the Economic Espionage Act -- don't apply when the stolen goods are not tangible property.

By Rachelle Dragani
Apr 13, 2012 10:55 AM PT

Computer source code isn't a physical object under federal stolen property laws, according to a federal court of appeals that overturned the conviction of a former Goldman Sachs programmer.

Sergey Aleynikov, the programmer, was wrongly convicted under the National Stolen Property Act and the Economic Espionage Act of 1996, according to a decision from the Second Circuit Court of Appeals Wednesday. The court ruled that while the stolen code was meant to be secret to maintain a competitive advantage, it doesn't qualify as "tangible" property. It was also not intended for "interstate or foreign commerce," and therefore couldn't be applied to the Economic Espionage Act.

Aleynikov was convicted in December 2010 under the federal laws after he downloaded source code from Goldman Sachs' company computers. The code operated the investment firm's high-speed computer trading system, which gave Goldman Sachs a significant advantage over competitors.

Prosecutors in the original case argued he stole the code at the end of his time at Goldman Sachs in order to provide it to his new employer, Teza Technologies, a Goldman competitor.

The appeals case wasn't focused on why Aleynikov downloaded the code or what he did with it, however. Instead, the court debated whether the National Stolen Property Act and Economic Espionage Act could be applied to source code. Since it was not physical property or designed to enter commerce transactions, the decision to convict Aleynikov under the federal acts was overturned.

Decision-Making

The decision to overturn the case on the National Stole Property Act wasn't surprising, according to Dennis E. Boyle, corporate espionage attorney at Boyle, Autry and Murphy.

"Other courts had ruled for years that intellectual property did not fall within the purview of the National Stolen Property Act," he told TechNewsWorld. "The Second Circuit applied the elements of the statute as other courts had done and came to the same conclusion."

The decision to overturn the charges regarding the Economic Espionage Act were more surprising, Boyle said. But given that the court adhered to a literal application of the law's wording on interstate commerce, he said it's clear that source code couldn't be included.

"Applying these words literally, a source code would not ever be introduced into interstate commerce," said Boyle.

Lagging Law

The three-judge panel voted unanimously in the decision, but Judge Guido Calabresi wrote a concurring opinion stating he didn't believe Congress, in writing the law, meant to leave out source code or other technologically related materials. His opinion suggested that if the Economic Espionage Act had been more up-to-date, the outcome of this case might have been very different.

"The law is always 10 to 20 years behind in technology," Peter Brill, attorney at Brill Legal Group, told TechNewsWorld. "Here, the court acknowledged that this was overturned based upon poor wording of the law, not necessarily because of the conduct."

In some ways, the law is making moves to catch up, although it's still a growing concern as computer systems, software and digital media are becoming ever more valuable to corporations.

"I imagine that especially with the worldwide concern over the increase in data hacking and corporate espionage overall, there is going to be a greater focus on bringing some of these statutes up in legislation," said Brill.

If not, said Boyle, prosecutors are going to continue to have a difficult time nailing hackers or other corporate thieves under federal law.

"The software piracy situation is frequently difficult for the government to reach, because although it seems like it should be illegal, frequently the act the government wishes to charge does not fit neatly into any criminal statute," said Boyle.